Moody’s Unveils Russian Connections in European Transactions: Key Insights and Implications
In a significant move toward financial transparency, EU institutions are now under heightened scrutiny regarding outgoing transactions related to Russian ownership. As of July 2024, the European Commission has introduced new reporting requirements for credit and financial institutions, aimed at monitoring these transactions closely.
New Reporting Requirements for Russian-Owned Transactions
According to Moody’s, the updated regulations mandate that any funds transferred from an EU entity to a non-EU country must be reported if the transaction exceeds €100,000 and originates from a Russian-owned entity. This directive falls under Article 5r of Council Regulation (EU) No. 833/2014.
Definition of “Funds”
The term “funds” encompasses a wide array of financial assets, including:
- Cash
- Cheques
- Claims on money
- Drafts and money orders
- Payment instruments
- Deposits within financial institutions
- Account balances and debts
This extensive definition ensures that even the most subtle financial instruments are scrutinized, enabling regulatory authorities to maintain visibility over significant transfers.
Enhanced Oversight Amid Ongoing Sanctions
In 2022, additional guidance was provided to prohibit accepting deposits from Russian nationals exceeding €100,000. This measure was implemented as part of a broader EU strategy following the 12th package of sanctions against Russia due to the ongoing conflict in Ukraine. The objective is to enhance the detection of potential sanction breaches and to map out Russia’s revenue sources.
Challenges in Tracking Transactions
Financial institutions face challenges in tracing indirect financial transfers and assessing the true extent of Russian ownership. Direct transfers are generally straightforward to trace, but indirect transfers complicate the identification process. To tackle this issue, Moody’s has introduced a specialized dataset designed to meet EU regulatory reporting requirements.
Insights from Moody’s Analysis
As of January 2025, Moody’s analysis identified 46,004 companies in Europe that meet the criteria of being at least 40% Russian-owned. The top six countries with such companies are:
- Czech Republic (11,715)
- Bulgaria (11,584)
- Germany (3,390)
- Latvia (3,133)
- Cyprus (2,928)
- Italy (2,467)
Notably, the Czech Republic and Bulgaria exhibit substantial exposure, while Western European nations like Germany and Italy also have significant numbers of Russian-linked companies.
Compliance and Future Reporting Periods
All obligated entities, including banks and credit institutions, must ensure compliance with these new reporting mandates. The €100,000 threshold applies to both individual transfers and cumulative transactions within a six-month window.
Furthermore, the definition of Russian ownership includes any entity that is more than 40% owned, either directly or indirectly, by a Russian person or entity, including those with dual citizenship.
Moody’s Role in Promoting Transparency
Moody’s service plays a critical role by providing comprehensive entity data, beneficial ownership information, and corporate structure details, which enhance transparency in identifying Russian ownership structures. Their sanctions screening capabilities further assist institutions in ensuring compliance with regulatory requirements.
The new reporting measures, applicable to non-EU branches of EU financial institutions, offer national competent authorities (NCAs) enhanced visibility over fund movements associated with Russian ownership. With the first reporting period concluding on June 30, 2024, and subsequent reports required every six months, adherence to these requirements is essential for preventing potential violations of sanctions.
For more information on EU regulations and compliance, visit the European Commission’s official website.
